PRD Lismore

72 Molesworth Street, Lismore, NSW 2480

02 6624 7700

PRD Kyogle

81 Summerland Way Kyogle, NSW, 2474

02 6632 3380

Strong Fiscal Policy in Place for Australia to Ride Out COVID-19

From the Desk of the Chief Economist

COVID-19
is, without a doubt, a disruption and game-changer at the same time. There are
many uncertainties at present, and quite a few “doom and gloom” stories on a
collapsing economy and being on the brink of a recession. There is no denying
that many Australian small businesses and inviduals are experiencing the brunt
of it, from loss of income to having to close their businesses.

Fiscal
policy, in the form of stimulus, is critical at this point, as it allows for
the society to access immediate funds. Monetary policy can assist, however
given that there are no legal requirements in Australia for banks to follow,
plus the notion of interest capitalisation (which will cost those with loans
more later on), it is a band-aid solution at best. The Australian Government
has rapidly introduced a number of financial stimulus packages, targeting those
who will be impacted the most.

COVID-19
is a world-wide phenomenon. The measures taken to contain the virus, as well as
assistance to prop up the economy, differs from nation to nation. An analysis
of the G20 countries, plus Iran, have revealed that at present Australia’s
fiscal policy puts us in a strong place to ride out COVID-19.

As
we can see in Table 1:

Against
other developed countries, Australia’s stimulus package as a % of 2019 GDP (14.4%)
is on the higher end, above United States and Canada, and significantly higher
than our neighbours New Zealand.

From
a Stimulus per Capita perspective Australia is in a strong position, whereby
our per capita stimulus is only second to Germany. We are well ahead.

Factoring in the number of jobs lost and stimulus package
as a % of 2019 GDP, Australia has a strong ability to provide financial
assistance, and in some instances more favourably.

How does Australia
compare to other G20 countries regarding the loss of unemployment/support for
loss of income? (note: all monetary amounts are in the native country’s
currency)

Currently Australians who
have lost their employment or have lost partial income can access a number of
government fiscal assistance, providing they can satisfy all of the requirements
both on a personal and business level. These payments include (but not limited
to): JobKeeper Payment ($1,500/fortnight), JobSeeker Payment ($550/fortnight),
and Coronavirus Supplement ($550/fortnight). How does this compare with other
countries?

United States of
America - $1,200 government cash
check for all residents. Individuals individuals who earn $75,000 in adjusted
gross income or less would get direct payments of $1,200 each, with married
couples earning up to $150,000 receiving $2,400 -- and an additional $500 per
child. The payment would scale down by income, phasing out entirely at $99,000
for singles and $198,000 for couples without children.

United Kingdom - The government would give grants to cover 80% of a
worker's salary of up to 2,500 pounds a month if businesses kept them on as staff.

Turkey – Relief for pensioners, with an increase in
retirement salary to Turkey Lira 1,500

South Korea - During the period of business absence, 70% of the
average wage must be compensated. The employees are subject to the provision of
‘allowances’ under the Labor Standards Act

South Africa – South African Rand 500 a month until July as part
of COVID-19 measures

New Zealand - Wage subsidies & leave payments to employers, however,
there is yet an announcement for extra unemployment benefits

France - Under the "partial unemployment" scheme,
employees should apply for state benefits which provides them an allowance and
that employers are banned from firing them.

Brazil, Iran, Saudi
Arabia – Unable to find precise
information at this time, although some news websites have indicated that
government assistance is currently being planned

It is not surprising that
developed countries within the G20 have a more comprehensive and structured
financial stimulus policy compared to developing nations. South Korea seems to
lead the developing nations in their response to the loss of employment due to COVID-19.

Australia presents a
comparable financial stimulus package to other developed nations, and in some
cases more advanced. It is extremely substantial compared to developing
countries.

Key Message

The world as we know it currently does not exist – it is
in a pause. COVID-19 and the hard-hitting economic impact it brings is not
exclusive to Australia, and nor are business closures and job/income losses. It
is a tough time for many across the globe. To date Australia has suffered a
loss of 750,557 jobs – which is extremely significant, especially in such a short
period of time. Other countries, as per known data, have also suffered job
losses, some to the extremes of over 1 million people in Germany and over 38
million people in India.

At this crucial time, perspective is everything. On a
micro / inward within Australia scale we may feel that the government’s fiscal
policy, in the form of economic stimulus, is imperfect. In fact, ALL government
policies are imperfect, as it is designed to be efficient (maximum result with
minimum resources) and effective (maximum results with a minimum amount of
time) at the same time. If we choose to look on a macro / worldwide comparison
however, we can see that Australia’s fiscal policy is substantial and puts us
in a strong position to ride out COVID-19.